Capital market regulator Securities and Exchange Board of India (Sebi) has barred Franklin Templeton Asset Management (India) from launching any new debt scheme for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the case of winding up of six debt schemes in 2020.
Also, it has been asked to refund investment management and advisory fees of over Rs 512 crore (including interest) collected with respect to the six debt schemes.
The recent Sebi order, Gopal Kavalireddi, head of research at FYERS believe, may sound like a relief to many retail investors. While many may feel it is a harsh order by the regulator, for most unitholders it may be resonated as "justice delivered'.
Given the entire fiasco, many investors may be having second thoughts if it is safe to invest in debt schemes going further.
According to Kavalireddi, until a few years ago, investments in debt funds were considered to be safe and to be suitable for conservative investors. However, he thinks that it turned extremely tough for stakeholders with corporates defaulting on their commercial paper, and rating agencies being slow to downgrade them,
"Sebi has been working tirelessly to make necessary changes in regulation for the benefit of investors – changes in entry and exit loads, cap on expense ratios, rationalisation and categorisation of schemes, the introduction of risk-o-meter, etc - have been very helpful. Unfortunately, the Franklin Templeton issue highlighted a new set of issues which had to be set right, with further regulations," he stresses.
So, what should investors do while choosing debt schemes?
There are few tips they should follow. Here are those:
Gather a basic understanding of the fund
As per Kavalireddi, investors need not avoid debt schemes completely, but they need to have a basic understanding of the scheme attributes, the risks involved, portfolio composition, familiarity with terms like credit risk, liquidity risk, duration risk, before investing.
"This was the first time when an AMC shut down 6 funds, leading to confusion among the unitholders. Hopefully, AMCs too have some takeaways from this episode, on what to do and what not to do in certain conditions," he believes.
Be guarded about investments
Mutual funds are good investment vehicles to build wealth over a longer period or support periodic income needs.
With the possibility of entire invested capital being returned to investors, Kavalireddi explains that this fiasco would probably be forgotten over time, but investors need to be guarded about their investments at all times.
It's important to remember - Once bitten, twice shy; Twice bitten, never forgotten.
Never chase returns blindly
While investing in debt mutual funds, investors generally look for higher returns. However, experts say that return-chasing should be considered carefully. The perspective of the debt mutual fund should be studied carefully.
Investors should identify the financial goals and invest accordingly. One can never judge what the future holds.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by: By Jomy Jos Pullokaran)